Hiring in the asset and wealth management industry rebounded in 2010, according to a review from executive search firm Russell Reynolds Associates. The firm expects compensation to rise in 2011, thanks in part to fierce competition among private equity firms recruiting leadership for their portfolio companies.
After two years of contraction, hiring in the asset and wealth management industry rebounded in 2010, and compensation is set to show modest gains, according to a new report by global executive search and assessment firm Russell Reynolds Associates.
“Despite a thaw in deal flow and an improved outlook for many private equity firms, the last three years of economic turbulence sustained demand for portfolio company executives with deep industry operating knowledge and a record of driving bottom-line impact. As a result, competition has been fierce as private equity firms seek proven portfolio company leadership, seasoned operating partners and industry advisors with deep industry expertise and networks,” said Jeff Warren, co-leader of the firm’s Financial Services sector and a managing director in the firm’s Private Equity practice. “Conversely, there has been little pickup in hiring for deal professionals with the exception that some well respected firms are launching adjacent investment strategies or strengthening their own capabilities in areas like investor relations and finance.”
For the asset and wealth management industry as a whole, certain functions and specialties are starting to see upward compensation pressure to attract or retain key personnel. But while overall U.S. compensation is set to increase 10 to 15 percent this year, compensation in Canada, Europe and Asia is expected to jump 15 to 20 percent, although bonus pools will be finalized later this year than in previous years.
The fourteenth annual report, Navigating the New Terrain in the Asset and Wealth Management Industry, released today, is a qualitative review of talent and compensation trends within both traditional asset and wealth management firms and those focusing on alternative investments, including hedge funds, real estate, and private equity, in the Americas, Europe and Asia/Pacific.
“As the investing rebound takes shape, Europe and Asia are pulling ahead of the United States in attracting and committing capital, and compensation naturally reflects that,” said Heather Hammond, a managing director in the firm’s Private Equity practice. “Global platforms—and the professionals who run them—are in a favored position. For example, many European institutional investors haven’t historically held significant allocations in equity or alternatives strategies as compared to their U.S. counterparts, so they now have the flexibility to increase allocation targets to these segments going forward.”
Key findings from the report include:
· Asset managers returned to the basics to get business back on track and focused on top line growth, now that much of the dramatic cost cutting is behind them. Firms with platforms distinguished by their integrity, transparency and simplicity attracted not only clients, but talent. “Boring is the new brilliant,” noted Debra Brown, a managing director in the practice.
· Wealth management remains highly competitive, with dominant national platforms fighting to hold market share in the face of consolidation and the increased threat from smaller boutiques and regional players, who are gaining ground in their ability to attract wealthy clients and top advisory talent.
· Demand for CEOs with investment backgrounds continued into 2010, yet finding qualified individuals with the desired mix of leadership and technical skills proved increasingly difficult. As a result, “best athlete” appointments were on the rise, with solutions coming from other branches of the financial services industry such as investment banking, capital markets and the securities business.
· Chief investment officers were in great demand this year as endowments, foundations, pension funds, family offices, sovereign wealth funds and asset and wealth managers were in the market for talent. As Brown points out, the competitive headwinds from numerous simultaneous CIO searches led boards and investment committees to consider creative, non-traditional solutions in addition to the tried and true.
· In the fundamental equity space, global was up, domestic was down. Emerging markets, global, EAFE and international equity were all sought-after strategies and will remain so into 2011. As a result, there was heavy demand by traditional long-only players as well as hedge funds for global, international (non-U.S.) and emerging markets equity portfolio managers. Their domestic counterparts, however, struggled to find new opportunities. Compensation will reflect this, with global specialists seeing increases, while that of long-only domestic equity analysts and portfolio managers will likely be flat to slightly down except for those who turned in exceptional performance. According to Brown, there is virtually no “bid away” for domestic equity stock pickers.
· In fixed income, credit continued to a hot spot, with the demand for high yield talent and teams picking up again this year. Hedge funds saw positive flows in event-driven, global macro and distressed credit, adding to the upward pressure on this group. Some of this demand was satisfied by teams coming off of sell side prop desks.
· Assets started flowing back into hedge funds this year, though new fund formation has become increasingly difficult with fewer and smaller launches on the docket. Larger, more mature hedge fund firms face the challenge of passing on the equity value to the next generation such that succession planning and ownership structure have come under increased review.
· Investors began allocating capital to real estate again, although slowly and episodically with a bias towards core strategies, which drove the hiring of senior acquisition professionals. Real estate investment firms sought to build portfolio value by hiring strong operating leadership for their assets and building succession plans for the senior executives and functional executives of their operating companies. More than ever, compensation will be driven by firm economics rather than by peer group: Those who can pay, will; those who can’t, won’t.
· At both traditional and alternative platforms, the most sophisticated institutional distribution executives who have longstanding client relationships and deep product expertise, knowledge of capital markets and familiarity with complex financial instruments were in high demand, as firms sought to woo investors searching for alpha. Compensation for those fitting this profile will be up significantly more than the 10 to 15 percent expected to be the industry norm.
· The retail distribution talent market was stagnant. What hiring there was supported pre- and post-retirement advice and guidance models, intermediary channel initiatives in the RIA/independent area, and new media marketing initiatives. Compensation expectations are flat against last year.
· The technology and operations function gained significant visibility with executive committees and boards, due to the ability of chief information officers to drive consolidation and automation of systems (and thus lower costs) and align people, processes and technology to improve overall governance and service delivery. The demand for talent is putting upward pressure on compensation, with increases of up to 15 to 20 percent expected.
· Having strengthened their risk management function after the meltdown, many institutions sought to move it to the next level, making risk management additive to business performance. There was increased demand for risk managers who have had line or profit/loss responsibility (to run business-unit level risk functions) as well as for those who have the demonstrated ability to work effectively with investors, bankers, and traders. The rise in compensation this function has enjoyed is expected to level off somewhat this year, however.
· Financial officer headcount remained steady in 2010, as companies continued to upgrade financial officer talent and weed out underperformers. CFOs, controllers, tax and audit executives are now expected to be strategic and proactive in working with senior management to create efficiencies across the organization. Compensation is expected to be flat to up 10 percent over last year.
About Russell Reynolds Associates
Russell Reynolds Associates is the most trusted name in global executive search and assessment. Through its 37 wholly owned offices, the firm’s more than 275 professionals conduct senior-level search and assessment assignments in a range of industries for public and private organizations of all sizes. With its one-firm culture, deep industry knowledge and unwavering commitment to client service, Russell Reynolds Associates is uniquely qualified to help clients find the best leaders for the future. The firm’s Web site is www.russellreynolds.com